It’s déjà vu all over again for the well stimulation sector.
Equipment manufacturers for the pressure pumping sector are filling order books once again, in some cases experiencing demand last seen in the 2010-2011 industry buildout. The surge indicates the pressure pumping market is tightening more quickly than anticipated.
The Wall Street consensus of a market destined for oversupply into mid-decade, or at least until demand returns from rising activity in natural gas, is crumbling. Greater demand for pressure pumping services is already underway even without increased activity in the gas markets.
Pricing is moving higher in multiple regional markets. What began as a reflection of bottlenecks in the transportation of bulk commodities like sand has evolved into 5% to 10% increases over the last six months in the cost of providing well stimulation services. Price per stage consequently reversed a three-year decline and is heading higher as utilization tightens.
Why the change? High oil prices have helped, providing more money to operators to expand field programs. But the change is also structural. It is an outgrowth of the transition to pad drilling and batch completions, which now represent more than 70% of horizontal drilling. A secondary stimulus involves the return of slickwater fracture stimulation as a preferred method for completions as operators seek to boost IP rates and expand EUR as the resource harvest phase in the tight formation oil and gas cycle reaches maturity.
Meanwhile the move to longer lateral lengths, coupled with more stages packed more closely together, is increasing downhole intensity and adding to the time it takes pressure pumping fleets to cycle through the completion process on a given location. Previously a pressure pumping fleet completed a single lateral of 15 to 20 stages in a week, then rotated to the next location. Now fleets are completing four or more laterals on a single well site with stage counts of 125 or more. Equipment is on site for three weeks or longer, effectively removing capacity from the market and increasing effective utilization of the existing fleet. Concurrently well count is expanding from improvements in drilling efficiency coupled with other productivity enhancements generated through pad drilling.
While the move to 24-hour scheduling has helped well stimulation providers handle larger numbers of wells, it also has increased the wear and tear on equipment, which now operates closer to design limits for longer periods of time. The reduction in nonproductive time for well stimulation equipment has been a boon as operators embrace techniques such as zipper fracks to increase the rate at which stages are completed at the well site. But it also means well stimulation providers face a double whammy from equipment wearing out more quickly even as vendors are tasked with providing additional capacity to meet expanding demand. This one-two punch has well stimulation providers back in the market for newbuild units to expand fleets while increasing the order volume for components to refurbish existing units.
Delivery times are increasing. In a few cases, delivery time is stretching into early 2015, although pricing for components and equipment has not changed materially at this point in the cycle.
The key takeaway is that productivity enhancements first originating as drilling efficiency in 2012 were compounded by the industry-wide move to pad drilling and batch completions in 2013. Completion efficiency has become the main story in 2014. This evolution emphasizes well stimulation—and demand for pressure pumping services.
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